Bringing the OSV market back on track in 2019

While the oil and gas industry overall has found times tough in the last few years, it’s undeniable that one of the hardest hit areas in the sector was, and largely remains, the OSV market.

However, 2019 is shaping up to be a better year for OSVs, if the trends appearing in other areas of the industry are anything to go by.

To make the most of the apparent upturn though, OSV businesses need to capitalise on the available opportunities, and quickly. And that includes making some tough decisions.

Scrapping and stacking

The first area under scrutiny is what to do with older vessels in an over-supplied marketplace.

The 2014 oil downturn occurred when the markets were full of positivity after the 2008 crash, assuming the apparent upturn that had taken place throughout 2013 and early 2014 was a sign of recovery.

The problem is that these signs of recovery meant the supply chain committed itself to the industry, and none more so than the OSV sector, which placed a large number of new vessel orders.

As these new vessels are now reaching market, decisions need to be made around scrapping older vessels. In a market facing oversupply and with a view towards a more sustainable future, surely the best decision for the OSV industry is to scrap as much as it sensibly can?

Plus, when it comes to stacked vessels near the end of their useful life without further investment, the tough short-term decision of eliminating these vessels and losing some immediate income might, in the long term, allow for better terms and more work over the coming months.

Digitalisation and cyber security

Much has been made in the industry of the need to move towards digitalised services.

While there are clear benefits of digitalisation in some areas, such as dynamic positioning, increased reliance on these solutions leaves organisations more exposed to possible cyber security breaches.

In the current climate though, investment in usually efficient digital solutions could prove costlier than originally intended.

Why?

Well, having recently updated and amended terms for privacy, data and GDPR changes to ensure compliance with tender requirements as well as the expected policies of operators and tier-one contractors, effecting significant digital changes can result in further changes to terms to ensure businesses are in compliance with cyber security policies.

As such, OSV businesses must fully assess all implications of offering more digital solutions, including price increases to cover costs, which could ultimately lead to loss of work against cheaper competitors.

Autonomy and employees

Similar to the digitalisation shift is the increasing development in autonomous systems, particularly for supply vessels.

While this technology has been hailed as offering ‘cheaper’ solutions due to reduced staffing costs, there are other cost implications including increased insurance and the potential for more indemnification being required under contract terms, given the potential risk and implications of system failure.

The push towards autonomy has arisen as a result of skills shortages in the OSV market as many employees are pulled away to work in other areas of the oil and gas industry under perceived better terms.

However, with recent disputes over working patterns and health and safety issues, the OSV market is in a good position to offer employment alternatives.

This is especially true if the usual offshore basic ‘perks’ such as connectivity (internet) and entertainment (tv packages) become the norm on vessels. Providing these home comforts may help attract workers back to the OSV side of the industry: a lower cost alternative in the short term than installing automated systems.

Calmer waters

All indications are that the oil and gas industry, and by association the OSV market, is entering a phase of more stability, if not a full return to the good times. To maintain a steady course and keep the market level, OSV business need to shape up with some tough decisions in the coming months.

Aberdeen-based partner Laura Petrie is a corporate and commercial lawyer with significant experience in upstream oil and gas. She frequently advises operators on a range of exploration and production matters including joint operations, transportation, farm-in/out arrangements, general contracting and asset restructuring.

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